Wall Street is lining up behind the pet stock.
Shares of Chewy (CHWY 2.31%) were gaining this week after several Wall Street analysts issued bullish notes on the pet-centric e-commerce stock.
The round of favorable analyst attention comes after the company delivered a better-than-expected second-quarter earnings report the previous week. According to data from S&P Global Market Intelligence, the news helped drive the stock up 16.6% as of the close on Thursday.
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Chewy stock is looking up again
Chewy, and the pet sector more generally, has gone through a massive downturn following the pandemic-driven boom that spurred pet adoptions.
However, it’s starting to look like those headwinds are finally dissipating, and at the same time, the company has learned how to operate a more efficient business. Investors responded well to its earnings report last week even though revenue growth was still sluggish, but profits surged.
This week, more Wall Street analysts jumped on the bandwagon of the recovering stock. Goldman Sachs reiterated a buy rating on the stock and a price target of $35 after the company’s presentation on Monday at its Communacopia and Technology Conference. Goldman said that recent improvements in active customer trends are due to internal initiatives that should start to drive an acceleration in revenue growth.
The previous Friday Morgan Stanley said it saw an increased probability of Chewy stock doubling due to improvements in profit margins, and Barclays also said it was more bullish on the stock after meeting with management, saying that improving revenue growth, continued margin expansion, and buybacks should drive the stock higher.
Is Chewy a buy?
Rival Petco has also soared over the last two days as that company introduced a turnaround plan, showing that beaten-down pet stocks are starting to recover from the meltdown they experienced after the peak of the pandemic.
Revenue rose just 2.6% in the second quarter, though adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 155%.
Chewy will need to accelerate revenue for the stock to keep going higher. I’d like to see that happen first before calling the stock a buy.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy and Goldman Sachs Group. The Motley Fool has a disclosure policy.